Short Sale Real Estate
Short sale real estate refers to property sold for less than is owned on the mortgage note. Borrowers must receive approval from their lender to engage in short sale transactions. If approval is granted Borrowers are given the opportunity to avoid foreclosure. The Borrower does not receive any money for the sale of their property.
Many investors seek out short sale real estate because these properties provide them with instant equity. Investors may find the property attractive even if the home is in need of costly repairs. By purchasing properties under market value, investors can use short sale real estate for house flipping or wholesaling.
Borrowers seeking relief from mortgage debt must submit a short sale hardship letter to their lender's Loss Mitigation Department. The hardship letter must outline the reasons which caused the Borrower to become delinquent on their mortgage note, along with other pertinent information regarding their financial situation.
In order to obtain short sale approval, three primary criteria must be met. First, the Borrower cannot have any equity in their home and the mortgage note. Second, the balance due on the mortgage note must be more than the house is worth. Third, the Borrower must provide evidence that a true financial hardship exists.
There are two short sale real estate options. The first is known as Deficiency Judgment and requires the Borrower to pay the difference between the short sale purchase price and actual loan. For example, if the Borrower owes $150,000 on their mortgage note and the real estate is sold for $125,000; the Borrower is responsible for the remaining $25,000.
If the Borrower is unable to repay the full amount, a Deficiency Judgment is placed against them. The judgment is reported to the major credit reporting agencies and remains on the Borrower's credit report for up to seven years after it has been paid. If the Borrower does not repay the entire judgment, it can remain on their credit report indefinitely.
The second type of shortsale agreement is known as Payment in Full without Pursuit of Deficiency Judgment. Using this contract, the lender agrees to accept the purchase price as full payment and will not persue the Borrower for the difference.
When engaging in short sale real estate transactions, experts recommend consulting with a tax professional. The Internal Revenue Service may consider the deficiency amount as taxable income.
Short sale real estate provides Borrowers with the opportunity to sell their property and get out of debt. It also provides real estate investors with the opportunity to purchase real estate under market value.
If you are facing foreclosure or have obtained short sale approval, contact Simon Volkov to determine what options are available. If you are an investor looking for short sale real estate, please take a moment to subscribe to our Investor Opportunities feed. Last, but not least, take a moment to visit our short sale real estate article library to learn more about buying and selling short sale properties.